UnitedHealth Group, one of the nation's largest health insurance companies, told investors Thursday that it was significantly lowering its profit estimates and blamed an expected loss of hundreds of millions of dollars selling individual policies under the federal health care law.
In light of the losses, the company warned that it was also weighing whether it would continue to offer individual coverage through the online exchanges for 2017.
The announcement comes as the latest blow to the market created under the law to allow better access to health insurance for people who buy coverage on their own rather than through an employer. As the law enters its third year, with open enrollment for 2016 now underway, many customers have faced sticker shock as premiums have risen significantly in some parts of the country. Some of the new companies offering coverage, including the so-called co-ops, have stopped selling coverage in recent weeks, leaving people with fewer options.
While UnitedHealth has only been able to sell a fraction of policies to consumers through the exchanges, which some critics contend are not priced competitively, its discontent with the federal health care law could signal a broader industry pushback. The insurance giant may also be using the news to prod the administration into making changes to the law or paying more of what the federal government owes insurers under one of the programs aimed at protecting them from losses in the early years. (Federal officials have said they are paying less than 13 cents of every dollar they owe, although they say they will make additional payments later.)
The company's threatened withdrawal also puts more pressure on regulators to scrutinize the proposed mergers of its rivals Anthem with Cigna and Aetna with Humana.
Citing weak growth in the number of new people signing up for coverage and the high costs of medical care for existing customers, which it described as affecting the whole industry, the company said it was reducing its earnings estimates for 2015 and 2016.
"In recent weeks, growth expectations for individual-exchange participation have tempered industrywide, cooperatives have failed, and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated," said Stephen J. Hemsley, the chief executive of UnitedHealth, in a statement.
"We have pulled back on '16 already," Hemsley told investors Thursday, saying the insurer was scaling back its marketing efforts to minimize its growth in this area next year.
UnitedHealth said it would decide whether to continue offering this coverage for 2017 by the middle of next year.
"As we see those markets actually being sustainable, we would be open to participating in them," Hemsley said. But he emphasized the company was not willing to continue losing money by selling the policies. "We cannot sustain those kinds of costs and losses, and we will evaluate the marketplace as it goes."
Hemsley refused to discuss whether the insurer had any talks with federal officials.
While UnitedHealth emphasized its other areas of business remained strong — such as offering coverage under Medicare private plans or handling claims for large employers — it said it was calculating a reduction of $425 million in profits this year because of projected losses from the online exchanges. The company said it was reducing its earnings estimate for 2015 to about $6 a share, and also lowered its earnings estimates for 2016.
UnitedHealth had initially been a reluctant participant in the market but now offers policies in 34 state exchanges. It has enrolled some 550,000 customers and told analysts it expected those numbers to remain fairly steady for next year. Roughly 10 million people overall are expected to enroll for 2016.
Obama administration officials emphasized the decision by UnitedHealth had not dampened competition in the market. The marketplaces continue "to grow," said Benjamin Wakana, a spokesman for the Department of Health and Human Services, who said consumers will continue to have a robust choice of plans.
"About nine out of 10 returning consumers will be able to choose from three or more insurers for 2016 coverage," he said in a statement.
But analysts raised questions about whether the move by UnitedHealth, and the grumblings of some other insurers, might force the Obama administration to make changes to the law to ensure that insurers would not face significant losses. Critics have argued that some of the original provisions to protect insurers from losses have not been sufficient, particularly because of limited funding.
Ana Gupte, an analyst for Leerink Partners, told investors that she expected UnitedHealth and other insurers would leave the public exchanges if they could not break even by the first half of 2016. But she emphasized that she believed the administration could make changes to the law.